Bootstrapping Strategies Part 1: The Compromise between Today and Tomorrow

Perhaps something of an oddity amongst publicly traded tech companies, Ubiquiti Networks was bootstrapped with no operational funding from inception up to the IPO.  For a software company, this path is challenging enough.  But, Ubiquiti makes hardware.  And with making hardware comes the additional financial burden of funding larger and larger manufacturing expenses as the business grows. People often ask me how we were able to pull this off.   Over the course of the next several weeks, I will introduce a set of bootstrapping strategies, which I hope will give insight into things I did well and things I maybe did not do so well in leading Ubiquiti from my apartment through our IPO.

In sharp contrast to Ubiquiti’s bootstrapped beginnings, venture capital backed companies are often supported by experienced, savvy investors with operational backgrounds, strategic mindsets, and a commitment to establishing expensive, but necessary infrastructure within their companies (including forming an experience board, hiring corporate lawyers, hiring experienced management, planning a public relations campaign, and creating an IP portfolio).  The assumption is this infrastructure will one day be imperative to protecting the company’s standing.  And, it took my own learning experiences to realize something — they are right.  VC’s are playing for tomorrow.

As a bootstrapping entrepreneur perhaps the biggest challenge is how to balance playing for today vs. playing for tomorrow.  When you are starting, there is no money or time to really look at tomorrow; you can easily get caught in the moment as you are scrapping with everything you have trying to survive today.

When I left my job at Apple in 2005 to dedicate myself to Ubiquiti, my only thought was “if this doesn’t work out, I am screwed.”  It was March of 2005 and my $600/month studio apartment lease down the street from Apple HQ was coming up for renewal.  Instead of committing to another year, I moved my futon and my HW lab into an economical $650/month office surrounded by bail bonds shops across the street from the San Jose Courthouse where I would make my home for the next several months.   Although there was sufficient capital from upfront customer down payments to fund the first manufacturing builds, I was locked in survival mode and entirely focused on how I was going to setup manufacturing, make the shipment lead-times, support initial customers, come up with new product designs, and build the Ubiquiti brand.

Ubiquiti's first office, 2005
Ubiquiti’s First Office, 2005

I had no real advisors, no board members, no corporate lawyers, no accounting, and no IP strategy.  I was completely winging it and was playing to survive another day.  I really did not always see the importance of living for tomorrow until much later on in the company timeline.  One of the biggest regrets I have today is that I did not make the transition earlier.

But to be fair, if Ubiquiti would have ended up as a failure and shut its doors early, playing for tomorrow would have become irrelevant.  Therefore, the best strategy is to incrementally increase your “insurance” as the value of your company increases and resources become more available.

Here are 3 areas of important “insurance” early-stage bootstrappers should look at:

Relationship Contracts:  At this point, you just got in the game.  You might have hired some contractors, partnered with another company, or signed up your first distributor.  No matter what the nature of the relationship is — an employee, friend, contractor, vendor, distributor, partner, etc. – EVERY ONE should be under a contract that protects the company’s best interest.  Get these signed once, filed and out of the way.  It is your most critical insurance.  Unfortunately, a lawyer should be engaged to create these contracts (I will talk about how to handle lawyers in a later post).  For now, remember when dealing with lawyers -– they work for YOU and you should always run them “closed-loop” with a specific scope of deliverables and defined project fee determined up-front.

Initial IP (start with Trademarks):  By now, you might be starting to produce product and generate some profits.  In order to protect against unfair competition as your product sales grow, you should start looking at some IP investment.  If funding a patent portfolio is still out of reach, start with provisional patents and  trademarks.  Trademarks also can provide powerful insurance against unfair competition at good economics.   They are important to have in the regions where a product is sold, but also IMPERATIVE to have in the region of manufacturing.  There are trademark consultants, patent agents, and online resources that can assist in economically registering trademarks and provisional patents.

Bookkeeping / Tax Accounting:  As you start to file corporate tax returns, it is important that you have an expert not only making sure you stay within the law, but someone who knows how to take full advantage of tax credits and strategies.  When I was starting Ubiquiti in the early years, even though it was incredibly profitable, cash flow was challenging as funds were constantly being reinvested into larger manufacturing volumes.  In this case, the timing of the re-investment and the tax obligations created severe cash flow challenges.  An experienced corporate tax accountant can find tax strategies that align with bootstrapping; including in this case for instance, tax payment deferral.  Proper book-keeping with as much transparency as possible is also important as your company grows as it will play a major role in facilitating future funding opportunities and maximizing your company’s perceived valuation.

Keep in mind, that this is just the beginning of the infrastructure you will have to commit to as the company matures.  But, hopefully by that time, you will have found a good advisor that can help to fill in the more advanced pieces.

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17 Responses to Bootstrapping Strategies Part 1: The Compromise between Today and Tomorrow

  1. Mark Mardigian June 11, 2012 at 8:10 pm #

    Fantastic information, Mr. Pera! I actually came to your blog as you were linked in a rumor associated with an NBA team. As a business management major with a minor in entrepreneurship, I found a wealth of knowledge in your blog posts.

    Keep up the great posts! Thanks!

  2. Gina Pera June 11, 2012 at 10:24 pm #

    HI Robert,

    Now that I see your desk (?), I can see the family resemblance. 😉

    Thanks for sharing your insights and lessons learned in such a clear, brass-tacks manner.

    And congratulations on your success!

    Wishing you all the best in Memphis.

    Gina Pera

  3. Linda Poindexter June 11, 2012 at 10:31 pm #

    Great stuff! Although my organization is in the non-profit sector (youth program), I find the information you’ve posted to be quite valuable. It inspires my thinking as I contemplate how to incorporate (what I think are “unique”) features into our program. Thanks for sharing, and I look forward to future posts.

  4. Nancy Woods June 12, 2012 at 12:09 am #

    I was drawn to your blog from researching your name after learning of the Grizzlies changing owners. I look forward to continue following your blog and gaining further insight into your knowledge, advices, and first-hand experience. Also, reads like a future best seller! Thanks for sharing. Welcome to Memphis and Go Grizz!!

  5. Scott Hudson June 12, 2012 at 12:20 am #

    Robert,

    I’m the guy blowing up your twitter account, sorry. I was reading about your future purchase (fingers crossed for you) of the Memphis Grizzlies and decided to see how the heck you made it so fast. So on to Wikipedia I went, read about you, and found this blog.

    I absolutely love the picture of your first office and the story you have to tell. It really hits home with me…I have a very similar picture that was taken of me around the same time (2005). My office, located in the corner of my bonus room… disheveled… anyway, it’s priceless to me. I have it framed and often people look at it and have no idea why it’s there. But I know you understand.

    I wanted to congratulate you on your success. I know how amazing your story is. I’m 5 years older…and several years behind you as far as owning my own team…but I’m trying!

  6. Don Woody June 11, 2012 at 6:12 pm #

    Great tip on keeping all interactions with lawyers a “closed-loop” proposition…On behalf of the loyal Memphis fanbase let me welcome you to town and please know my home is always open to you…You can see the roof of FedExForum from my window ! Go Grizz !!!

  7. teguh wijaya June 11, 2012 at 6:21 pm #

    Hi Robert ,
    just one word — awesome !!

    teguh

  8. Suresh June 11, 2012 at 10:05 pm #

    Nice work Robert! Very pragmatic and promising for young entrepreneurs. Looking forward to your future posts.

    Good luck with the Grizzlies. I am a Fan from Cuban land. Can’t stand the Mavs!!

  9. jeremy califano June 11, 2012 at 10:41 pm #

    Brilliant blog and very insightful Rob

  10. J-Bo June 12, 2012 at 12:06 am #

    Please, keep the young core intact… and welcome to Memphis!

  11. Zahra Mirafzali June 12, 2012 at 5:52 am #

    Actually, I like your first office a lot. Every corner of it tells a story. Congratulations on all your success.

  12. Joe June 12, 2012 at 6:01 am #

    Nice blog and great tips. As a former Memphian, Memphis is a great basketball town – you’ll really enjoy it. I know the fans will be excited

  13. Ken Chuang June 12, 2012 at 6:47 am #

    That’s so cool.
    Is buying Grizzlies part of building something defensible?
    You’re really an interesting and smart guy.

  14. Angel Whitman June 13, 2012 at 7:33 pm #

    Your ability to step back and give an honest self appraisal, acknowledge mistakes made, strengths and weaknesses is what sets you apart from those who let their own pride hold them back. Strong character traits that seem increasingly hard to find! That said, I believe the Grizzlies finally have the right man for the job! Memphis has long needed strong leadership. Perhaps you can make history as the man that finally brings home a championship!!!

    Wishing you continued success,
    Angel

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  16. Kris Tuttle June 15, 2012 at 3:26 am #

    This is a great start. We’ve been following UBNT and have published some research reports on it via R2 and IPO Candy.

    There hasn’t been enough good work probing the space between bootstrapping and going the VC route.

    I do think that the best practice is probably in the middle but closer to bootstrapping at the beginning and shifting slowly and carefully to funded over time. But your direct experiences and posts are what will really help us understand the space here and develop some strategy around it.

    Keep up the great work.

    Kris

  17. Jose Alves Jr September 2, 2012 at 6:24 pm #

    Hi Robert.

    Back in 2010 I had the priviledge to stand at your side on stage and transate Airmax World Conference – Brazil. It was awsome!

    Since 2007 I’m the most enthusiastic Ubiquiti brand promoter in Brazil and I plan to keep doing it for many years to come.

    As a consultant and trainner I’ve seen throughout the year how Ubiquit’s hardware allowed for the little guy to start a wireless internet service provider and reach success. There’s a whole industry in motion because of you and your dream.

    My wish of continuous success in you personal and professional life and LONG LIVE UBIQUITI NETWORKS !

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